25.5.17

UN Red Flags China's OBOR

The United Nations, close on the heels of OBOR Summit, has raised a red flag over economic, financial, social and environmental risks of China's Belt and Road Initiative across a number of countries that are part of the mega connectivity project.

A recently concluded UN Economic and Social Commission for Asia and the Pacific Study has warned of financial risks in countries in south and central Asia where China's announced investment value under BRI is high compared to the relative size of the economy of the recipient country .

The $15-billion China-Uzbekistan investment deal signed in late 2013 is roughly equivalent to a quarter of Uzbekistan's GDP. Similarly, the $37-billion China-Kazakhstan cooperation agreement signed in late 2014 and early 2015 and the $46-billion China-Pakistan agreement in April 2015 each represent over a fifth of GDP level in Kazakhstan and Pakistan, according to the UN study .

China's commitment to Pakistan has now reached $62 billion. Similarly , the $24-billion China-Bangladesh agreement in October 2016 is equivalent to almost 20% of Bangladesh's GDP .

“External account indicators for some of these economies are relatively weak. In Kazakhstan, the current account deficit amounted to about 6% of GDP in 2016, while external debt stood at over 80% of GDP in 2015. In Pakistan, foreign external reserves are rather small at about 4 months of imports in early 2017,“ said the report.

“Relatively easy access to large foreign loans for infrastructure projects, even if most of them tend to be on a concessional basis, can lead to risks through a slight deterioration in trade balance, undermining macroeconomic and balance of payments stability in small economies with underdeveloped financial markets and less effective debt management,“ the study said regarding the nature of the Chinese loans.

It is no secret that Sri Lanka has run into a huge debt trap by welcoming Chinese funded projects. Sri Lankan debt exceeds $60 billion, more than 10 percent of that is owed to the Chinese. To resolve its debt crisis, the Sri Lankan government agreed to convert its debt into equity. This may lead to Chinese ownership of the projects finally.

The report by UN’s Economic and Social Commission for Asia and the Pacific, prepared on the request of China, has made some disturbing predictions for Pakistan. Such as:

The report said CPEC, which will traverse through Pakistan-occupied Kashmir may create “geopolitical tension” in the region by igniting further tensions between India and Pakistan. “The dispute over Kashmir is also of concern since the crossing of the CPEC in the region might create geopolitical tension with India and ignite further political instability,” said the report on China’s ambitious Belt and Road Initiative.
This problem can be resolved only when China take India on board OBOR but this cannot happen as long as Pakistan continues to claim PoK as its own. Secondly, Pakistan also needs to shun terrorism to start a peaceful relationship with India.

The report says that CPEC could fuel separatist movement in Pakistan’s Balochistan province. While noting that CPEC could serve as the “driver for trade and economic integration” between China, Pakistan, Iran, India, Afghanistan and the Central Asian states, the report said that the project may also cause several problems within Pakistan and reignite separatist movement in the country due to opposition in Balochistan. “However, social and environmental safeguards are a concern. The CPEC could lead to widespread displacement of local communities. In Balochistan, there are concerns that migrants from other regions of Pakistan will render ethnic Baloch a minority in the province,” it said.

The report says that instability in Afghanistan could cast a shadow over the viability of the CPEC. “Afghanistan’s political instability could also limit the potential benefits of transit corridors to population centres near Kabul or Kandahar, as those routes traverse southern and eastern Afghanistan where the Taliban are most active,” it said.

Moreover, the report says that there are concerns over CPEC passing through the already narrow strip of cultivable land in the mountainous western Pakistan, destroying farmland and orchards. The resulting resettlements will reduce local population into an “economically subservient minority”, it said, adding, “In addition, Hazaras are another minority of concern. If the benefits of the proposed CPEC are reaped by large conglomerates, linked to Chinese or purely Punjabi interests, the identity and culture of the local population could be further marginalised,” the report cautioned.
“Marginalisation of local population groups could reignite separatist movements and toughen military response from the Government,” it further said.

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